DLSE Publishes Guidelines On Salary Deductions

By April 25, 2010Articles

One indicator for whether an employee has “exempt” status is that he or she is paid on a salary rather than hourly basis. Exempt employees are not entitled to overtime, meal or rest periods; and, as a general rule, they are not subject to reductions in salary for working less than a full work week. As a result, employers are often confused about how to respond when a salaried exempt employee misses a full or partial day’s work.

Occasionally, employees may be absent for significant hours of work due to personal or health reasons (other than disability). At first glance, the logical and seemingly fair resolution to this situation may appear to be that the employee should not be compensated for the hours which he or she didn’t work. However, because exempt employees are not paid on an hourly basis, failure to fully compensate such an employee due to absence equates to a reduction in salary. It is here where employers must tread lightly.

In California, an exempt employee’s salary may not be reduced for partial day absences, however, an employee’s paid-leave benefits may lawfully be reduced in partial-day increments. An impermissible deduction in salary could lead to the conclusion that an employee is not being paid on a salary basis, which may inadvertently destroy the employee’s exempt status. That employee can then seek to recover unpaid wages for meal, rest breaks or overtime. Thus, an employer may expose itself to more financial liability than if it had simply allowed the employee to take time off without consequence.

A November 28, 2009 opinion by California’s Division of Labor Standards Enforcement provides much needed guidance to employers as to how they should pay exempt employees who have not worked a full workweek. While the administrative opinion letter is not controlling legal authority, courts often treat DLSE opinions as persuasive authority in wage and hour cases.

The DLSE opinion set out answers to eight different examples that are meant to illustrate California’s exceptions to the general rule prohibiting deductions from a salaried employee’s wages. Notably, the DLSE made clear that an employer may deduct from an exempt employee’s vacation or sick leave time to account for partial or full day absences without tampering with the employee’s exempt status. Under certain circumstances, (full day absence and no vacation leave available) an employer may even deduct from the exempt employee’s salary.

According to the DLSE an exempt employee’s salary can not be deducted in less than full-day increments, although deductions from paid leave benefits are permissible for partial day absences. In other words, if an employee is absent for fewer than 8 hours, his or her salary cannot be reduced, but accrued vacation benefits maybe deducted. In the event an employee misses a full-day (the equivalent of 8 hours), the salary may be reduced if there is insufficient balance remaining in the employee’s sick and personal leave banks, and if the absence falls into one of the enumerated exceptions.

If you would like a free copy of the DLSE opinion letter or have any questions or comments regarding this Labor Law Update please contact attorney Michael Daly of the Daly Law Firm at 619-525-7000 or daly@dalylawfirm.co.